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Zafar Hayat

Doctor of Philosophy, (Monetary Economics)
Study Completed: 2014
Massey Business School


Thesis Title
An empirical assessment of Pakistan's discretionary monetary policy strategy using novel discretion and inflation bias indicators

Read article at Massey Research Online: MRO icon

Theory of dynamic inconsistency of monetary policy highlights that vesting unconstrained discretion with a monetary authority for the achievement of dual objectives of inflation and growth significantly creates excess inflation (inflation bias) without growth-gains. Mr. Zafar delved into this issue by introducing a new discretion-assessment approach and novel frameworks for generation of discretion and inflation bias indicators to help empirically investigate the axiomatically true notion. These proposed frameworks potentially provides basis for empirical assessment of typical discretionary monetary policy strategies across the globe. Using data for a 50 years’ timeframe from Pakistan, a typical case of unconstrained discretionary monetary policy, the thesis found stable and robust evidences that discretion is significantly biased towards inflation, which in turn affects the real growth negatively. This finding signals a reorientation in focus of typical discretionary central bankers such as Pakistan, away from the growth objective to the inflation objective to yield optimal results. 

Dr James Obben
Dr Shamim Shakur
Associate Professor Faruk Balli

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